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T.R. Venkatadari and Others V/S Commissioner of Service Taxi, Mumbai

    Order Nos. A/89947-89950/17/STB in Appeal Nos. ST/87398, 87399, 87401 and 87402 of 2013

    Decided On, 26 September 2017

    At, Customs Excise Service Tax Appellate Tribunal West Zonal Bench At Mumbai

    By, THE HONORABLE JUSTICE: RAMESH NAIR
    By, MEMBER AND THE HONORABLE JUSTICE: RAJU
    By, MEMBER

    For Petitioner: Prasad Paranjape, Advocate And For Respondents: R. Kapoor, Commissioner (Authorised Representative)



Judgment Text


1. The fact of the case is that appellants were imposed penalties under rule 77(2) of the Finance Act, 1994 for nonpayment of admitted liability of Service Tax by company M/s. Kingfisher Airlines Ltd. Shri Prasad Paranjape, learned counsel for the appellants made following proposition with regard to the penalty.

(a) to attract penalty under section 77(2) of the Act, it is necessary to establish that the person was required to comply with any provision of the Act or the rules made thereunder and further he has contravened such a provision.

(b) Section 77(2) of the Act being penal in nature and having been introduced with effect from May 10, 2013, it cannot be made applicable retrospectively to any offence committed prior to the said date.

Both the above propositions are upheld by the honourable Bombay High Court and approved by the honourable Supreme Court by dismissing the SLP filed by the government against the judgment of the honourable Bombay High Court in case of S.L. Kirloskar v. Union of India : [1993] 68 ELT 533 (Bom). He further submits that the SPL filed by the Revenue against the above judgment of the honourable Bombay High Court has been dismissed by the honourable Supreme Court Union of India v. Kirloskar (S.L.) : [1997] 94 ELT A248 (SC)].

2. On the other hand, Shri Roopam Kapoor, learned Commissioner (Authorised Representative) appearing on behalf of the Revenue reiterates the findings of the impugned order. He made following submission:

(a) The advocate for appellant, in their submissions has sought to rely upon the judgment of honourable Bombay High Court in the case of S.L. Kirloskar v. Union of India : [1993] 68 ELT 533 (Bom). Said judgment is not applicable in the instant case as the relevant section of the Central Excise Act which has been examined by the honourable court uses the word "manufacturer". There is no doubt about the proposition that if the word used is either "manufacturer" or "any other person who is liable to pay service tax..." (which has been used in section 77(a) of the Finan

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ce Act, 1994) would not make an individual liable for penal action. It was submitted during the course of hearing that section 77(b), as well as section 77(c)(i), (ii), (iii) does not deal with either "manufacture" or "any person who is liable to pay service tax" but makes "any person" who violates the provisions of the Act liable to penalty. This penalty is equivalent to the general penalty under Central Excise Act or Customs Act liable to be imposed wherever a specific penalty has not been prescribed.

(b) The facts of the case are that the service tax was collected by M/s. Kingfisher Airlines and four persons, who are made liable to penal action in the SCN, had taken a conscious decision not to pay the collected service tax to the Government. This fact was admitted by all the four persons.

(c) Collecting of service tax and not paying the same is an offence under the Service Tax Act, and as such any person who has taken the decision to violate the law would be liable for penal action under the provision of section 77.

(d) An alternate plea which had been taken by the appellant is that a provision for specific penalty on Directors has been introduced only with effect from May 10, 2013, where the Director, manufacturer, secretary or other officers of a company were made liable for penal action for violation of specific offences, this provision cannot be extended retrospectively. It was highlighted that section 78 A, specifies the penalty on persons in cases of specific violation whereas a general penal provision provides for penalty for any violation of any of the rules or other provisions of the Act. It was submitted that there was no attempt at retrospective application of section 78A but there was a specific reference for violation of the Rules and other provisions under the Finance Act, 1994 in section 77 even before section 78A was introduced.

(e) It was also submitted that the judgment in the case of Diwan Rahul Nanda v. Commissioner of Central Excise, Goa : [2013] 29 STR 544 (Trib.-Mum) cannot be treated as good law as it has not given any findings or any reasoning while observing that there is no provision under the Act to impose penalty on individuals. As such it cannot be treated as a binding precedent in the absence of cogent legal reasoning.

(f) It was also submitted that in the case of Prabhat Tarda Factory (India) Ltd. v. CCE Patna [2002-TIOL-232-CESTAT-Kol], the honourable Tribunal, while considering the penalty imposition on the individual Director had observed that as the penalty has been imposed on Prabhat Tarda Factory (India) Ltd. [2002-TIOL-232-CESTAT-Kol], there is no justification for imposition of separate penalty upon the director. It is pertinent to note that honourable Tribunal did not, at any stage, say that there is no provision for imposition of penalty on the director. It is, therefore, implied that the honourable Tribunal had accepted the provision of imposition of penal action on Director under the provisions of the Finance Act 1994.

(g) The case of United Enterprises v. Commissioner of Central Excise & Service Tax, Patna : [2013] 65 VST 354 (CESTAT.-Kolkata); [2013] 29 STR 605 (Trib.-Kolkata), was also brought to the notice of the Bench wherein the Co-ordinate Bench at Kolkata had, while setting aside the penalty on the Director, had observed that the said penalty is set aside as "Both the authorities below have not recorded specific involvement of Shri Atul Jain in the short/non-payment of service tax warrants the personal penalties against him..." It is submitted that in the current case specific involvement of the individual have been clearly brought out in investigation as well as in the SCN and OIO. It is also submitted that the findings of the Commissioner as regards the definition of "any person" was also reiterated. In view of the above submission of the learned Authorised Representative he placed reliance on the following judgments:

(a) Hatkesh Co-operative Housing Society Ltd. v. Assistant Commissioner of Income-tax : [2017] 10 ITR-OL 263 (Bom); [2016-TIOL-2073-HC-MUM-iT]

(b) Kripa Outdoor Publicity v. Customs, Excise and Service Tax Appellate Tribunal, Chennai: [2016] 92 VST 35 (Mad); [2016-TIOL-132-HC-MAD-ST]

3. We have carefully considered the submissions made by both the sides and perused the records.

4. The short issue to be decided in the present case is that whether the appellants are liable to penalty under section 77(2) of the Finance Act, 1994 for the offence of non-payment of service tax committed by the company M/s. Kingfisher Airlines Ltd. wherein the appellants are either directors or employees. The adjudicating authority after discussing in details the roles of all the appellants who are either directors or employees of M/s. Kingfisher Airlines Ltd., imposed the penalties upon them under section 77(2) of the Finance Act, 1994 which reads as under:

"77. Penalty for contravention of rules and provisions of Act for which no penalty is specified elsewhere.--(1)...

(2) Any person, who contravenes any of the provisions of this Chapter or any rules made thereunder for which no penalty is separately provided in this Chapter, shall be liable to a penalty which may extend to [ten thousand rupees]."

From the reading of the above rules, it is understood that penalty can be imposed on any person who contravenes any of the provisions of this chapter of the Finance Act, 1994 or any rules made thereunder for which no penalty is separately provided in this chapter. Now the question arises that who is that "any person" and whether that person is legally bound to comply with any of the provisions of the chapter of the Finance Act, 1994 or any rules made thereunder.

5. In the facts of the case, the offence is non-payment of admitted liability of service tax by the company M/s. Kingfisher Airlines Ltd. The liability is on the company and not on the directors or the employees, therefore if the company fails to discharge the statutory liability, it is the company against whom the action of recovery of such unpaid tax can be made under the statute. Therefore by not paying the dues, the company admittedly contravened the provisions of the chapter of the Finance Act, 1994 and rules made thereunder. As regards individual persons, in the present case, directors and employees of the KAL are not liable to discharge the service tax liability of KAL, therefore the appellants have not contravened the provisions of Act or Rules made thereunder.

6. In section 77(2) of the Finance Act, 1994, the term "any person" means a person who is liable to comply with the provision(s) of the Act and/or Rules made thereunder. From the adjudication order, it is seen that no provision of law was quoted therein which binds the present appellants to follow certain legal provisions of the Act and/or Rules made thereunder. In this position, next question arises, then on whom the provision of section 77(2) shall apply. The simple answer is the person who is legally bound to comply the various provision of chapter of Finance Act, 1994 and/or rules made thereunder. As regards provisions of the chapter of Finance Act, 1994 and/or rules made thereunder it is meant for levy of service tax and prescribed procedures therefore. The person liable for payment of service tax and compliance of various provisions is that person who is liable to pay the service tax and to comply the prescribed procedure under the rules. Therefore for the purpose of section 77(2) of the Finance Act, 1994, in the present case the person, who is liable to pay service tax and to comply the provisions therefor, is the company M/s. Kingfisher Airlines Ltd. and no one else. The purpose of section 77(2) is to impose penalty on the taxpayer, in case the assessee contravenes any of the provisions and/or rules, if not provided separately. For example, if the assessee does not, maintain statutory records in the manner prescribed, the said assessee shall be liable for penalty under section 77(2).

7. The legislators, if have conscious intention to make any act as an offence and to make such offence punishable, enact a law. Taking reference of Customs and Central Excise Acts, we find that in Central excise, for offence of evasion of excise duty, various penal provisions were made under section 11AC of the Central Excise Act, 1944, rule 25 of the Central Excise Rules, 2002 and for contravention of any provisions or rules under Central excise, a separate penal provision was made under rule 27 of the Central Excise Rules, 2002. The rule 27 of the said rules is also invokable on the assessee who is liable to pay excise duty. Despite the existence of rule 27, when legislators decided to make a penal provision for an act of aiding and abating the evasion of duty, by an individual person (other than assessee) than provision was made under rule 26 in Central Excise Rules, 2002. In the Finance Act, 1994 there is no similar penal provision for penalising any person, other than the assessee. We reproduce the provision of rules 26 and 27 of the Central Excise Rules, 2002 for more clarity:

"26. Penalty for certain offences.--(1) Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater.

(2) Any person, who issues--

(i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or

(ii) any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made there under like claiming of CENVAT credit under the CEN-VAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.

27. General penalty.--A breach of these rules shall, where no other penalty is provided herein or in the Act, be punishable with a penalty which may extend to five thousand rupees and with confiscation of the goods in respect of which the offence is committed."

From the above rules, it is found, rule 26 is invokable on the individual person for the specific acts of the individual person prescribed therein. Under this rule a person, other than an assessee, can be penalised. Unlike this rule 26, there is no pari materia rule in the chapter of the Finance Act, 1994 or in the Rules made thereunder. Despite existing of rule 26, a rule 27 was made to penalise the assessee, which is pari materia to section 77(2) of the Finance Act, 1994. Therefore in absence of similar provision of rule 26 of the Central Excise Rules, 2002 in the Finance Act, 1994 or rules made thereunder, no personal penalty on individual person can be imposed in connection with evasion of service tax by the assessee (KAL).

8. Similar to penal provision of rule 26 of the CER, 2002, in Customs Act, 1962 also separate penal provisions for individual person have been provided under section 112/114AA of the Customs Act and similar to rule 27 of the CER, 2002, in customs there is a provision under section 117 for the assessee which is similar to section 77(2) of the Finance Act, 1994. The aforesaid sections in Customs Act, 1962 are reproduced below:

S. 112. Penalty for improper importation of goods, etc.--Any person,--

(a) who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act, or

(b) who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111,

shall be liable,--

(i) in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty not exceeding the value of the goods or five thousand rupees, whichever is the greater;

(ii) in the case of dutiable goods, other than prohibited goods, subject to the provisions of section 114A, to a penalty not exceeding ten per cent, of the duty sought to be evaded or five thousand rupees, whichever is higher:

Provided that where such duty as determined under sub-section (8) of section 28 and the interest payable thereon under section 28AA is paid within thirty days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent, of the penalty so determined;

(iii) in the case of goods in respect of which the value stated in the entry made under this Act or in the case of baggage, in the declaration made under section 77 (in either case hereafter in this section referred to as the declared value) is higher than the value thereof, to a penalty not exceeding the difference between the declared value and the value thereof or five thousand rupees, whichever is the greater;

(iv) in the case of goods falling both under clauses (i) and (iii), to a penalty not exceeding the value of the goods or the difference between the declared value and the value thereof or five thousand rupees, whichever is the highest;

(v) in the case of goods falling both under clauses (ii) and (iii), to a penalty [not exceeding the duty sought to be evaded on such goods or the difference between the declared value and the value thereof or five thousand rupees], whichever is the highest.

S. 114AA. Penalty for use of false and incorrect material.--If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods.

S. 117. Penalties for contravention, etc., not expressly mentioned.-- Any person who contravenes any provision of this Act or abets any such contravention or who fails to comply with any provision of this Act with which it was his duty to comply, where no express penalty is elsewhere provided for such contravention or failure, shall be liable to a penalty not exceeding one lakh rupees."

From the reading of the above customs provisions, it can be seen that though there is general penal provision under section 117 for contravention of provision of the Act but for personal penalty on individual for their certain acts, separate penal provision under sections 112 and 114AA were made. This clearly indicates that since contravention of the Acts or Rules made thereunder is only relates to the assessee, the penalty for such contravention can be imposed only upon the assessee and not on the individual person. The obligation and responsibility of not contravening the provisions of act and rules made thereunder is only on the assessee and not on any other person. The general penalty for an offence of contravention of provision of Act/Rules cannot be imposed on other than the person who is an assessee. Whenever the legislators had intention to penalise individual person that too for their specific acts, a separate penal provision for the specific acts were made such as rule 26 in Central Excise Rules, 2002 and section 112/114AA in Customs Act, 1962. However there is no similar provision was enacted in the Finance Act, 1994 for service tax matters during the relevant period of this case.

9. It is also observed from the text of the rule 26 of the CER, 2002, section 112/114AA of the Customs Act, 1962 that the acts prescribed therein which liable for penalty are such which can be acted only by an individual person and not by artificial person like a company. Therefore for penalising an individual person an independent provision is must, which is absent in the Finance Act, 1994. For this reason, general penal provision for contravention of the provision of Act/Rules provided under section 77(2) of the Finance Act, 1994 cannot be invoked to penalise an individual person.

10. It is pertinent to note that for service tax matters, when legislators thought deem fit that individual persons such as director, manager, secretary or other officer, of the company who committed specified contraventions a penal provision by way of insertion of section 78A was enacted in the Finance Act, 1994. Had the provision of section 77(2) sufficient for penalising individual person, there was no need of section 78A. This further strengthen the view that section 77(2) of the Finance Act, 1994 was not adequate to penalise any individual person. The section 78A was enacted on May 10, 2013 whereas period in the present case involved is April, 2010 to March, 2012, hence the same is not relevant in the present case in view of the honourable Bombay High Court's judgment in the case of S.L. Kirloskar v. Union of India : [1993] 68 ELT 533 (Bom) wherein it was held amongst other grounds, that penalty on the director under rule 209A cannot be imposed for the period when said rule was not in force and rule 209A cannot be invoked retrospectively.

11. On careful consideration of the submissions made by Shri Roopam Kapoor, learned Authorised Representative, we find that he tried to distinguish all the judgments relied upon by the learned counsel for the appellants. We do appreciate the learned Authorised Representative for his efforts in doing so and we also agree that none of the judgment has dealt with the legal issue of interpretation of section 77(2). Since our above finding is based independently on the interpretation of section 77(2) by comparing the similar provisions of Central Excise and Customs, we find that none of the judgments relied upon by the learned counsel is directly relevant to the issue in the present case, hence we need not to discuss those judgments. As per our above observation, we are of the view that appellants cannot be penalised invoking section 77(2) of the Finance Act, 1994 as the provision of the same is applicable only on the assessee not on individual person. Therefore the impugned order is set aside. Appeals are allowed
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